Dems, oil execs face off at hearing

Senate Democrats and the heads of the five biggest private oil companies faced off Thursday in a showdown over efforts to repeal billions in annual industry tax incentives amid rising industry profits, gas prices and the federal debt.

Democrats have pointed to roughly $35 billion in earnings from the five biggest oil companies in the first quarter of 2011 as justification that their federal incentives are not necessary.

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“Businesses should make a profit — that’s what drives the economy — but do these very profitable companies actually need taxpayer subsidies?” Senate Finance Chairman Max Baucus said at the outset. “Energy incentives should help us build the energy future we want to see — not pad oil company profits.”

He said the billions in annual incentives have not lowered gas prices and their repeal would not harm domestic production and jobs. “Even without these tax breaks, these companies would clearly be highly profitable,” Baucus said. “We can put this money to better use and we should.”

But one by one, the five CEOs essentially gave the same message: Raising industry taxes could hamper jobs and energy supply while exacerbating already high prices.

“Tax increases on the oil and gas industry — which will result if you change long-standing provisions in the U.S. tax code — will hinder development of energy supplies needed to moderate rising energy prices,” said Chevron Chairman and CEO John Watson. “It will also mean fewer dollars to state and federal treasuries … and fewer jobs — all at a time when our economic recovery remains fragile and America needs all three.”

Republicans accused Democrats of holding the hearing just to score political points, while offering no solutions to lowering gas prices.

“This demands an energy policy, but all this hearing is about is providing a justification for tax increases,” Finance Committee ranking member Orrin Hatch said.

“This hearing should not be used to score cheap political points,” he said before displaying a large photo of a dog sitting on a pony to underscore his point. “Let’s send the pony back to the stable. … Let’s send the dog back to the kennel,” he said.

Senate Democratic leaders are moving ahead with a plan to repeal $21 billion in tax incentives for the big five oil companies over 10 years and use that money to help pay down the deficit. Senate Majority Leader Harry Reid has scheduled a test vote on that idea for Wednesday.

The oil executives argued that few other industries pay more in taxes than they do, and they said scaling back just their incentives would be discriminatory.

“It is not simply that they are misinformed and discriminatory. They are counterproductive,” ExxonMobil CEO Rex Tillerson said of the changes in tax law Democrats are promoting.

Exxon reported $10.7 billion in earnings for the first quarter of 2011 — the highest of the five big companies.

But the back-and-forth arguments almost seemed beside the point, as Democrats, Republicans and the company CEOs recycled well-worn talking points about legislation that is more a messaging exercise than one that has a shot of becoming law.

While the vast majority of Senate Democrats are expected to back the plan, opposition from many Republicans and some oil-state Democrats is likely to sink it in the end. It also has no chance of getting through a Republican-led House.

“We do not expect today’s Senate hearing to catalyze immediate action; it is more likely to relieve pressure members of both parties are feeling from voters in response to high energy prices,” said Kevin Book, a managing director at Clear View Energy Partners.

This article first appeared on POLITICO Pro at 10:33 a.m. on May 12, 2011.